Kansas lawmakers divide into two camps on how to plug $1 billion budget hole

When lawmakers assemble in Topeka in January, they will have to drastically cut spending or raise taxes. Or both. It’s unavoidable.

Republican legislators have already begun dividing into two camps about how to solve the state’s budget woes, foretelling a fight that’ll play out within the party that controls both the Kansas House and Senate.

Kansas must cut $279 million from its budget before July just to be dead broke with a balance of zero in its checking account.

Gov. Sam Brownback can choose to make allotments, automatic spending cuts that don’t require the Legislature’s approval. He can also enact administrative policy changes at state agencies to save money. The governor has yet to make a public comment on the budget since the revised revenue numbers were released Monday evening.

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With those cuts not yet in place, the state is supposed to spend $6.3 billion from its general fund this year. The entire budget, including federal aid, stands at $14.6 billion.

But after that, it’ll be in the Legislature’s hands. The state faces a $436 million shortfall for the 2016 fiscal year, which starts in July, but that number assumes that the state reduces spending this year first. So lawmakers actually have to pass a budget that cuts spending by $715 million, about 11 percent of what the state plans to spend from its general fund and about 5 percent of its total budget when federal funds are included.

The state of Kansas has a two-year budget cycle, so they’ll have to cut that amount again for fiscal year 2017 (starting July 1, 2016) when they pass a preliminary budget for that year. Even after doing that, the state is projected to have a shortfall of $400,000 for that year. That adds up to a cumulative budget hole of more than $1.4 billion that lawmakers will have to close.

And that’s if the state hits its recently revised revenue projections. If it misses the mark, the situation could be even more dire.

Duane Goossen, who served as budget director under the three governors preceding Brownback, said the revised revenue estimates released this past week assume that the state will surpass individual income tax revenue from the prior year. But so far the state is about $80 million behind where it was last year.

“We’ve been dropping behind last year’s pace, not gaining on it. If that trend continues, then the revenue estimate that’s just been put in place is still too high,” Goossen said.

Some lawmakers have blamed a sluggish national economy for the poor revenue, but one culprit for the budget hole is income tax cuts that the Legislature passed and Brownback signed into law in 2012, according to the state’s nonpartisan Legislative Research Department.

Republicans hold supermajorities in both the House and Senate, so it’ll be up to the GOP leaders to find a solution and get their members to pass it.

Public statements from Senate President Susan Wagle, R-Wichita, and House Speaker Ray Merrick, R-Stilwell, have signaled a potential conflict within the party on how that will play out in the coming months.

Wagle has said that lawmakers have a duty to balance the budget and that they would look at both taxes and spending to come up with a solution.

Merrick, on the other hand, borrowing a line from President Ronald Reagan, has said the state does not have a revenue problem, it has a spending problem.

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“My opinion is, Susan left the door open on both sides of the equation. And Ray didn’t,” said Rep. Mark Hutton, R-Wichita. “Ray slammed the door.”

Hutton, who sits on the House Appropriations Committee, said he wants to safeguard education funding from cuts, but otherwise lawmakers should be ready to explore all options.

“It’s not going to be one big decision. It’s going to be a whole bunch of small, hard decisions,” Hutton said. “I’m not ruling anything out. I think anybody who starts drawing lines right now is premature, personally.”

Merrick called delaying or reversing income tax cuts a nonstarter in an interview before the election. He argued the tax cuts would spur economic growth, while government spending would not.

He said that former Gov. Kathleen Sebelius “spent money like a drunken sailor” and argued that government jobs do not contribute to the health of the state’s economy.

“Government employees produce nothing. They’re a net consumer. And you got that cost forever and ever and ever because they’re on the KPERS (pension) plan, they’re on all the government insurance and everything,” Merrick said. “That is employment to Democrats. Hire more (government employees). And that was Kathleen; she’d brag about her employment number, ‘Oh, I got a lot of people employed.’ Yeah, you got a lot more government employees employed. That doesn’t stimulate the economy.”

The government, he said, relies on new jobs created by business to provide its revenue.

In fiscal year 2012, the last full year without the Brownback tax plan, the state took in $6.4 billion in tax revenue. In fiscal year 2014, the first full year of the Brownback tax plan, the state took in $5.6 billion in tax revenue. During that time spending increased.

“All areas of government spending will be under scrutiny,” Merrick said in an e-mail. “Tightening the belt is never easy, but it’s extremely important to the future well-being and prosperity of our state that we allow taxpayers’ own money to remain with them as much as possible.”

Rep. Steve Brunk, R-Wichita, a member of the House Taxation Committee, also said no changes will be made to the tax code.

“We’ve got two or three decades of layers of inefficient government that’s just been stacked up and stacked up, layer upon layer,” Brunk said.

“We’re not going to make any changes in the tax code. That’s not going to happen. That’s certainly not going to happen,” Brunk said. “We’re resolute and set on a path for Kansas to become a low tax state … that’s what it’s going to take for the next 20 years to stimulate jobs in Kansas.”

Sen. Les Donovan, R-Wichita, chair of the Senate Taxation Committee, said all options should be on the table, including possible adjustments to the state’s tax code.

“This is serious and we’ll treat it that way because we have to. We can’t leave town without a zero balance or below zero, so we’ll do what we have to do to make it fit,” Donovan said. “And not everybody’s going to be happy with it. … But we’re going to try to protect those key parts of government, those folks who can’t help themselves, we’re going to continue to take care of them.”

Donovan, who has served in the Legislature since 1992, said lawmakers have dealt with similar budget problems in the past.

“Back in 2002, right after 9/11, the economy just hit a huge dip,” said Donovan. “We had to go in and do some things that weren’t too palatable to the people who don’t like to raise taxes, but we did and pulled out of the recession and got going again for a while.”

He said Kansas – and Wichita in particular – has still not recovered from the recession, which has caused a 37 percent drop in employment in the aviation industry since 2008.

Sen. Ty Masterson, R-Andover, who chairs the Senate Ways and Means Committee, which oversees the budget, agrees with Donovan that lawmakers need to look at both spending and revenue.

“It may not be anything to do with income tax rates. It might have something to do with sales tax rates or sales tax exemptions, but it would be foolish to say you’re not going to look at both sides of the ledger,” Masterson said.

However, Masterson said there was too much hysteria over the budget and continued to defend the state’s income tax plan.

“You do see the headlines that say, ‘The Brownback tax plan – Kansas loses a billion dollars to the tax plan.’ Well, the truth is, you flip that. Taxpayers gained a billion dollars due to the tax plan,” Masterson said. “Let the people of Kansas get their billion dollars and see what they can do with it.”

Masterson said the state could find efficiencies without reductions to major services. He said that spending on some of the state’s economic development programs may need to reviewed, such as the Kansas Bioscience Authority, a public-private partnership that invests in health innovations.

However, many advocacy groups are already bracing for cuts to services.

Shannon Costaradis, president of Kansas Action for Children, a group that advocates for needy children, said the state has already narrowed eligibility to social services, such as the Temporary Assistance For Needy Families program, sometimes referred to as welfare. She is worried that policymakers may be tempted to cut these programs as a short-term fix.

“We’re largely talking about families with children when we talk about those social safety net benefits,” Costaradis said. “When we look at further reductions likely accomplished through administrative policy change we might see short-term cost savings, which will be very attractive to policymakers given the fiscal situation, but the long-term consequence is we’ve got more kids who are tomorrow’s poor adults.”

More than half the state’s budget goes to K-12 education, and the governor’s budget director, Shawn Sullivan, would not rule out cuts to education during a news conference on Monday.

Tom Krebs, a government relations specialist with the Kansas Association of School Boards, said that successful candidates, including the governor, put education in the forefront of their campaigns and his organization expects leaders to keep their commitment in spite of the budget crisis. However, he did say Sullivan’s lack of a definitive answer had educators “holding their breath.”

“We were told that education is No. 1 and that’s our expectation, and we’ll work with our leaders to make that happen,” Krebs said.

Goossen said it “seems hard to imagine” that K-12 funding will go untouched if lawmakers intend to resolve the budget issues completely through cuts. He said one possibility was that the state would drain the highway fund, but in the long term K-12 funding will likely be affected unless the tax code is adjusted.

Merrick said lawmakers will look for efficiencies in the education budget, but his goal is to reinvest any cost-savings back into K-12 classrooms.

Democrats have been warning for years that the state would face a crisis as a result of the tax cuts.

“I’m just really concerned about what might happen (to social services),” said Rep. Gail Finney, D-Wichita. “You know we’re going to be up there advocating, trying to maintain at least what we have, but it’s going to be a difficult session.”

Finney said the state needs to consider revising its tax code and delay additional tax cuts scheduled to happen in 2016 and 2018.

Senate Minority Leader Anthony Hensley, D-Topeka, said he would meet with his caucus to form an alternative plan on how to close the budget hole, but he said the dismal estimates the state released last week represent a best-case scenario. The real revenue numbers will probably be worse based on the state’s performance so far this year, he said.

“There’s no question that there’s going to be a lot of pain,” Hensley said. “And the Republicans continue to say we’ll grow ourselves out of this, that we’ll have such great job growth that’ll make up for the lost revenue. It cannot be done. It’s impossible.”